Tracking the Shift from Mortgage Refinancings to HELOCs

A key channel for understanding the effect of monetary policy on households is mortgage refinancing. At lower rates, households may refinance their mortgages and take cash to cover shocks to their labor earnings or family-related expenses. As rates increase, this option becomes less attractive, and households may turn to alternatives like credit cards or home equity lines of credit (HELOCs) to partially offset the reduced availability of credit.

In 2020 and 2021, U.S. households had a major opportunity to refinance mortgages at low rates. The 30-year fixed-rate mortgage recorded historical lows, averaging 3.11% in 2020 and 2.96% in 2021. Refinancing activity surged during this period. According to FR Y-14M mortgage data reported by large banks, mortgage originations for the purpose of refinancing increased in 2020 and 2021, with year-over-year growth of 58% and 27%, respectively.Mortgage originations for the purpose of refinancing are computed as the sum of the balances of new first-lien loans originated as cash-out, rate-and-term or other refinances. However, as the average mortgage rate began rising in 2022, mortgage originations began to decline, and mortgage refinancing activity quickly collapsed.

HELOCs’ Rise in Popularity among Homeowners

A HELOC is a type of loan that is secured by home equity, which is the difference between a property’s value and any existing mortgage balance. In this blog post, we document the increase in HELOC usage during the past several years and conclude that HELOCs have emerged as an important alternative to mortgage refinancing for accessing liquidity.

We based our analysis on quarterly data from the Federal Reserve Bank of New York’s Consumer Credit Panel, which is constructed using data from Equifax. We examined the percentage of HELOC borrowers among all borrowers with housing debtBorrowers with housing debt are those who have positive balances on mortgages or HELOCs. Using borrowers with housing debt as the denominator captures the population that holds real estate equity and excludes the population that does not own homes. (extensive margin) and the HELOC amount per borrower (intensive margin) from the first quarter of 2019 through the first quarter of 2026 for those ages 20 to 64.This age group is more likely to need a loan to smooth labor earnings shocks or deal with family-related expenses. The HELOC amount per borrower is inflation-adjusted to the first quarter of 2026 using the personal consumption expenditures deflator.

In addition, we divided U.S. ZIP codes into deciles based on 2019 per capita aggregate gross income, which we derived from IRS individual income tax data. To better understand the broadness of the surge in home equity loans, we will discuss data for the U.S. as a whole, for the lowest-income 10% of ZIP codes, and for the highest-income 10% of ZIP codes.

The figure below shows that, at the national level, HELOC use has risen since early 2022. The share of HELOC borrowers among borrowers with housing debt (solid dark blue line) rose from 9.18% in the first quarter of 2022 to 10.82% in the first quarter of 2026 (an 18% increase). The per-borrower HELOC amount (dashed light blue line) also increased, from $67,357 in the third quarter of 2022 to $76,562 in the first quarter of 2026.

Divergence between Low- and High-Income ZIP Codes

The following figures show the percentage of HELOC borrowers among borrowers who have housing debt and the inflation-adjusted HELOC amount per borrower in the lowest-income 10% of ZIP codes (first figure below) and in the highest-income 10% of ZIP codes (second figure below). The data suggest that the surge in per-borrower inflation-adjusted HELOC amount was broadly observed; however, an increase in the share of HELOC borrowers appeared only in the low-income ZIP codes.

In the lowest-income 10% of ZIP codes, the inflation-adjusted HELOC amount per borrower increased by 21% (from $43,891 in the first quarter of 2022 to $53,212 in the first quarter of 2026), surpassing 2019 levels. During the same period, the percentage of HELOC borrowers increased from 5.53% to 6.38%. That is a 15% increase in the past four years.

In the highest-income 10% of ZIP codes, the inflation-adjusted HELOC amount per borrower also increased, although only by 10% (from $117,926 in the third quarter of 2022 to $129,782 in the first quarter of 2026). However, the share of HELOC borrowers remained flat after 2022, at lower levels than those in 2019.

Conclusion

HELOC usage has increased over recent years. While the share of HELOC borrowers remained lower than it was in 2019, it increased significantly for lower-income ZIP codes. At the same time, since 2022, the level of inflation-adjusted HELOC debt per borrower increased 14% at the national level, 21% for the lowest-income ZIP codes, and 10% for the highest-income ZIP codes.

Notes

1. Mortgage originations for the purpose of refinancing are computed as the sum of the balances of new first-lien loans originated as cash-out, rate-and-term or other refinances.
2. Borrowers with housing debt are those who have positive balances on mortgages or HELOCs. Using borrowers with housing debt as the denominator captures the population that holds real estate equity and excludes the population that does not own homes.
3. This age group is more likely to need a loan to smooth labor earnings shocks or deal with family-related expenses.

Appendix 1: HELOC Usage from the First Quarter of 1999

The following figures show that, during the 2000-06 housing boom, HELOC usage increased significantly. Nationwide, the share of HELOC users recorded a historical high in late 2005, and the inflation-adjusted HELOC amount per borrower continued to increase until 2009.

Appendix 2: Mortgage Refinancings and 30-Year Fixed Rates

The following FRED charts plot mortgage originations for the purpose of refinancing using FR Y-14M mortgage data from large financial institutions and the average rate for a 30-year fixed mortgage. The charts cover two periods—one starting in 2013, and the other starting in 2019.